6/21/2002 @ 12:01AM

Blue Chip Real Estate Investments

Dot-com dreamers in San Francisco who spent millions on the requisite loft in South of Market back in 1999 can’t be feeling so smart now. Their once-fashionable lofts have taken a nosedive in value.

The average sale price of a single-family home in the South of Market or Potrero Hill areas of San Francisco–where Internet workers’ offices and homes proliferated during the late 1990s–was $622,266 during first-quarter 2001, according to McGuire Real Estate. A year later, the average price dropped 12% to $549,683. The “up and coming” markets of San Francisco came up for a while–and then they promptly fell down. But it was a microeconomic effect; in other neighborhoods of San Francisco, such as Sunset, the Outer Mission or Stonestown, prices are stable, and in some cases, prices are actually rising.

San Francisco isn’t unusual. Although on average, home prices in most metro markets are up, there are small pockets in almost every housing market where prices enjoyed a meteoric rise during the late 1990s and have now either flattened or dropped precipitously. In Belltown, Seattle, one of the most desirable spots for Microsoft millionaires, single-family homes cost an average of $352,359 in 1998. By 2000 they peeked at $490,069, and in 2001 average prices fell slightly to $485,502; this year they’ve slumped further to $484,781, according to Northwest Multiple Listing Service, based in Kirkland Washington.

Similarly, Charlestown, Mass., just outside Boston, saw single-family home prices peak in 2001 when the median sales price was $419,500. In 2002 the median sales price slipped slightly to $319,250, according to publishing and research firm the Warren Group. (In sharp contrast, however, condominum prices have continued to rise in Charlestown.)

All homeowners look at their house as an investment. Whether they feel it’s the home of their dreams or just a place in which live before having kids or moving to the suburbs, owners want to be able to sell it for more than they paid. Preferably, for a lot more.

So if you are looking to purchase an urban home that will hold, if not increase, its value, where are the best places to buy? Unsurprisingly, the best bets are usually the safest–and the most expensive. Like buying blue-chip stocks, the odds of seeing double-digit short- term growth is highly unlikely, but the long-term appreciation is much more secure.

Nevertheless, the lure of the “up-and-coming” neighborhood is that prices are markedly lower and returns can be tremendous. According to Manhattan brokerage firm the Corcoran Group, the average sales price in Tribeca increased 177% from $634,882 in 1998 to $1.757 million in 2002. By contrast, the average sales price in the Upper East Side–the high end of the Manhattan real estate market–only rose 74% from $705,661 in 1998 to $1.227 million in 2002.

But these figure do not represent the whole picture. For example, in Manhattan’s fashionable SoHo district, home prices rose 51% between 1998 to 2001–but price appreciations alone don’t guarantee it’s a nice place to live. Unlike other parts of Manhattan, SoHo is a glorified shopping district, and lacks amenities such as parks, grocery stores and schools that enhance the quality of life.

For those that can afford it, it may be worth paying a premium to live in secure neighborhoods, such as New York’s Fifth Avenue or Los Angeles’ Beverly Hills. These are markets where inventory is finite and demand is constant, practically guaranteeing that homeowners can make their money back when they sell. However, since these markets are mature, the returns may be limited–home prices aren’t likely to skyrocket as they might in a market that’s going through rapid growth.

But it’s easier to take a risk in the middle of a housing boom, which we are still in, when all markets seem to be pointing up. Interest rates are at a 30-year low, and home sales are breaking records all over the country. When the housing market hits a snag, which it inevitably will, property buyers will have to be more selective about where they choose to buy a home, and it’s more than likely that the up-and-coming neighborhoods will be perceived as a high-risk place to invest.

We asked brokers and real estate experts in five cities–Boston, Denver, Los Angeles, New York and San Francisco–which neighborhoods in their markets represented the safest bets in the future. Click on the slideshow link to find out what they said.